The Arbitration and Conciliation Act 1996 is the primary law that regulates arbitration proceedings in India. Of the many provisions under this Act, Section 32 is critical as it addresses the termination of arbitration proceedings. The article explains when an arbitral tribunal has authority to terminate its proceedings while maintaining arbitration as an effective dispute resolution method.
Key Provisions of Section 32
Section 32 of the Arbitration and Conciliation Act, 1996, describes circumstances under which proceedings in an arbitral matter are to be put to an end. It enunciates simple guidelines regarding when the process of arbitration can cease, either with a final arbitral award or by a decision of procedure taken by the arbitral tribunal. A step-by-step explanation of each subsection follows:
Subsection (1): Termination of Proceedings
Provision: Arbitral proceedings are considered terminated in two situations:
Final Arbitral Award: When the arbitral tribunal makes a final decision (award) on the dispute between the parties, the proceedings are considered concluded.
Order of the Arbitral Tribunal: The tribunal may also terminate the proceedings by issuing an order under subsection (2) if certain conditions are met (outlined in the following subsection).
Explanation: This subsection establishes the two main ways through which arbitration ends: either by a formal decision (the award) or by the tribunal's order based on particular circumstances, such as withdrawal of the claim or agreement between the parties.
Importance: The ending of an arbitration process can be finalised by a tribunal decision or through a formal award which gives users flexibility to conclude the proceedings.
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Subsection (2): Conditions for Termination of Proceedings
Provision: The arbitral tribunal can issue an order to terminate the arbitration proceedings under the following conditions:
(a) Withdrawal of the Claim by the Claimant:
The claimant may withdraw their claim, but the withdrawal must be done with the consent of the tribunal. If the respondent objects to the withdrawal and can demonstrate a legitimate interest in obtaining a final settlement of the dispute, the tribunal may not allow the termination.
Explanation: If the claimant decides to withdraw their claim, the arbitration proceedings can be ended unless the respondent has a valid reason to continue the process. For example, the respondent may want a formal resolution for the sake of closure, even if the claimant does not pursue the case anymore.
(b) Agreement Between the Parties to Terminate:
An order to close the proceedings comes from the tribunal after both parties consent to end the investigation.
Explanation: This is the most straightforward situation where the parties, by mutual consent, decide to end the arbitration process. This agreement could be based on a settlement, or both parties might decide that further proceedings are unnecessary.
(c) Continuation of Proceedings Becomes Unnecessary or Impossible:
If the tribunal finds that continuing the proceedings is either unnecessary or impossible, it may terminate the proceedings.
Explanation: This provision covers situations where, for example, the dispute is resolved outside the tribunal or if external circumstances (like the death of a party, the dissolution of a company, or legal incapacity) make it impossible to proceed with the arbitration.
This allows the tribunal to use its discretion to terminate proceedings where it believes continuing the arbitration is futile or unfeasible.
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Subsection (3): Termination of the Tribunal's Mandate
Provision: The mandate (or authority) of the arbitral tribunal automatically terminates when the arbitral proceedings are terminated, subject to Section 33 (which deals with correction of the award) and subsection (4) of Section 34 (which deals with setting aside the award).
Explanation:
When the arbitration ends (either through an award or order), the tribunal's authority to act also concludes.
However, if there is an application to correct the award under Section 33 or if the award is challenged under Section 34 (on grounds of procedural irregularity or other reasons), the tribunal's mandate may continue temporarily for the purpose of dealing with those applications.
Importance: According to this section, the tribunal loses its authority when arbitration proceedings terminate, yet a few exceptions exist for evaluated or appealed awards.
Grounds for Termination under Section 32
There are various grounds which can result in the termination of arbitration proceedings under Section 32:
Settlement of the Dispute: Where the parties agree on a settlement or the tribunal issues an award, the proceedings naturally terminate.
Abandonment of the Claim by the Claimant: In case the claimant fails to pursue the claim, the tribunal can terminate the proceedings due to their inaction.
Inability of the Tribunal to Continue: If the tribunal is unable to continue (e.g., an arbitrator resigns, or a party is unable to appoint an arbitrator), the tribunal may hold that it should conclude.
Mutual Agreement of the Parties: When both parties mutually agree to conclude the proceedings, they can collectively agree to bring the arbitration to a halt.
Lack of a Valid Claim or Defense: If a party does not submit a claim or defence within a reasonable time, or if the tribunal finds that it is useless to continue the arbitration, the proceedings can be closed.
Case Laws
This part sheds light on the different manners in which the proceedings under arbitration may terminate. It highlights that the tribunal, as well as the parties possess the power to terminate the proceedings subject to certain conditions, giving room for flexibility to the arbitration process. The following are some prominent case laws concerning Section 32 of Arbitration and Conciliation Act, 1996 (Termination of proceedings):
1. Hyundai Engineering and Construction Co. Ltd. vs Union of India (2012)
Facts:
The Hyundai Engineering company started an arbitration proceeding against India's Union because of an unresolved contractual matter. The claimant filed for withdrawal from the proceedings during the ongoing litigation. The Union of India expressed a concern that their right to resolve the pressing matter remained unaffected despite the other party's intention to withdraw.
Judgment:
The Supreme Court, while interpreting Section 32(2)(a), observed that a party wishing to withdraw a claim is only entitled to do so when the other party does not resist or the tribunal holds no proper interest in pursuing the arbitration.
In this case, the Court sided with the Union of India and held that their objection was legitimate, thus permitting the arbitration proceedings to continue.
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2. Indian Oil Corporation Ltd. vs Amritsar Gas Service (2009)
Facts:
Indian Oil Corporation (IOC) initiated arbitration proceedings against Amritsar Gas Service for breach of contract. The claimant (IOC) agreed to withdraw the claim after some initial arbitration hearings, but the respondent (Amritsar Gas Service) objected, arguing that they had a vested interest in obtaining a final resolution of the matter to avoid future claims or litigation.
Judgment:
The Punjab and Haryana High Court, relying on Section 32(2)(a), ruled that since the respondent had a legitimate interest in the matter, the tribunal had the discretion to continue the arbitration proceedings despite the claimant's request for withdrawal.
The court emphasised that both parties' interests must be considered, and in this case, the respondent's interest in having a final settlement was found valid. Therefore, the proceedings continued.
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Summing up
According to Section 32 of Arbitration and Conciliation Act from 1996, arbitration runs smoothly through defined termination grounds. The termination clause, according to Section 32, applies when arbitral awards are issued, there is mutual consent between parties or when arbitration becomes unfeasible. Through these provisions, the arbitration process maintains both prompt dispute resolution and protects parties' rights to create arbitration, which is a more reliable and successful resolution system for disputes in India.
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Section 32 of Arbitration and Conciliation Act: FAQs
Q1. What is Section 32 of Arbitration and Conciliation Act?
Section 32 outlines the conditions under which arbitration proceedings may be terminated, such as the issuance of an award, mutual agreement of the parties, or inability to continue the proceedings.
Q2. When can arbitration be terminated under Section 32?
Arbitration can be terminated after the tribunal issues an award, if the parties mutually agree to end the process, or if the tribunal finds it impossible to proceed due to particular circumstances.
Q3. Can a party challenge the termination decision under Section 32?
Yes, a party can challenge the termination decision in court, mainly if it occurs before the arbitral award is made or if there are concerns with the tribunal's conduct.
Q4. What happens after arbitration is terminated under Section 32?
After termination, the dispute is resolved (if an award is made), or the parties can pursue other dispute resolution methods like litigation or mediation.
